Transpo Law 3

7/29/2019 Transpo Law 3

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1.) G.R. No. 119197, May 16, 1997, TABACALERA INSURANCE CO.,PRUDENTIAL GUARANTEE & ASSURANCE, INC., and NEW ZEALANDINSURANCE CO., LTD., petitioners, vs. NORTH FRONT SHIPPINGSERVICES, INC., and COURT OF APPEALS, respondents.

BELLOSILLO, J.:

TABACALERA INSURANCE CO., Prudential Guarantee & Assurance, Inc., andNew Zealand Insurance Co., Ltd., in this petition for review on certiorari,assail the 22 December 1994 decision of the Court of Appeals and itsResolution of 16 February 1995 which affirmed the 1 June 1993 decision ofthe Regional Trial Court dismissing their complaint for damages against NorthFront Shipping Services, Inc.

On 2 August 1990, 20,234 sacks of corn grains valued at P3,500,640.00 were

shipped on board North Front 777, a vessel owned by North Front ShippingServices, Inc. The cargo was consigned to Republic Flour Mills Corporation inManila under Bill of Lading No. 001 1 and insured with the herein mentionedinsurance companies. The vessel was inspected prior to actual loading byrepresentatives of the shipper and was found fit to carry the merchandise.

The cargo was covered with tarpaulins and wooden boards. The hatches weresealed and could only be opened by representatives of Republic Flour MillsCorporation.

The vessel left Cagayan de Oro City on 2 August 1990 and arrived Manila on

16 August 1990. Republic Flour Mills Corporation was advised of its arrival butit did not immediately commence the unloading operations. There were dayswhen unloading had to be stopped due to variable weather conditions andsometimes for no apparent reason at all. When the cargo was eventuallyunloaded there was a shortage of 26.333 metric tons. The remainingmerchandise was already moldy, rancid and deteriorating. The unloadingoperations were completed on 5 September 1990 or twenty (20) days afterthe arrival of the barge at the wharf of Republic Flour Mills Corporation inPasig City.

Precision Analytical Services, Inc., was hired to examine the corn grains anddetermine the cause of deterioration. A Certificate of Analysis was issuedindicating that the corn grains had 18.56% moisture content and the wettingwas due to contact with salt water. The mold growth was only incipient andnot sufficient to make the corn grains toxic and unfit for consumption. In factthe mold growth could still be arrested by drying.

Republic Flour Mills Corporation rejected the entire cargo and formally


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demanded from North Front Shipping Services, Inc., payment for thedamages suffered by it. The demands however were unheeded. Theinsurance companies were perforce obliged to pay Republic Flour MillsCorporation P2,189,433.40.

By virtue of the payment made by the insurance companies they weresubrogated to the rights of Republic Flour Mills Corporation. Thusly, theylodged a complaint for damages against North Front Shipping Services, Inc.,claiming that the loss was exclusively attributable to the fault and negligenceof the carrier. The Marine Cargo Adjusters hired by the insurance companiesconducted a survey and found cracks in the bodega of the barge and heavyconcentration of molds on the tarpaulins and wooden boards. They did notnotice any seals in the hatches. The tarpaulins were not brand new as therewere patches on them, contrary to the claim of North Front Shipping Services,Inc., thus making it possible for water to seep in. They also discovered thatthe bulkhead of the barge was rusty.

North Front Shipping Services, Inc., averred in refutation that it could not bemade culpable for the loss and deterioration of the cargo as it was nevernegligent. Captain Solomon Villanueva, master of the vessel, reiterated thatthe barge was inspected prior to the actual loading and was found adequateand seaworthy. In addition, they were issued a permit to sail by the CoastGuard. The tarpaulins were doubled and brand new and the hatches wereproperly sealed. They did not encounter big waves hence it was not possiblefor water to seep in. He further averred that the corn grains were farm wetand not properly dried when loaded.

The court below dismissed the complaint and ruled that the contract enteredinto between North Front Shipping Services, Inc., and Republic Flour MillsCorporation was a charter-party agreement. As such, only ordinary diligencein the care of goods was required of North Front Shipping Services, Inc. Theinspection of the barge by the shipper and the representatives of theshipping company before actual loading, coupled with the Permit to Sailissued by the Coast Guard, sufficed to meet the degree of diligence requiredof the carrier.

On the other hand, the Court of Appeals ruled that as a common carrierrequired to observe a higher degree of diligence North Front 777satisfactorily complied with all the requirements hence was issued a Permit toSail after proper inspection. Consequently, the complaint was dismissed andthe motion for reconsideration rejected.


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The charter-party agreement between North Front Shipping Services, Inc.,and Republic Flour Mills Corporation did not in any way convert the commoncarrier into a private carrier. We have already resolved this issue with finalityin Planters Products, Inc. v. Court of Appeals 2 thus

A "charter-party" is defined as a contract by which an entire ship, or someprincipal part thereof, is let by the owner to another person for a specifiedtime or use; a contract of affreightment by which the owner of a ship or othervessel lets the whole or a part of her to a merchant or other person for theconveyance of goods, on a particular voyage, in consideration of the paymentof freight . . . Contract of affreightment may either be time charter, whereinthe vessel is leased to the charterer for a fixed period of time, or voyagecharter, wherein the ship is leased for a single voyage. In both cases, thecharter-party provides for the hire of the vessel only, either for a determinateperiod of time or for a single or consecutive voyage, the ship owner to supplythe ship's store, pay for the wages of the master of the crew, and defray the

expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art.1732 of the Civil Code. The definition extends to carriers either by land, air orwater which hold themselves out as ready to engage in carrying goods ortransporting passengers or both for compensation as a public employmentand not as a casual occupation . . .

It is therefore imperative that a public carrier shall remain as such,

notwithstanding the charter of the whole or portion of a vessel by one ormore persons, provided the charter is limited to the shin only, as in the caseof a time-charter or voyage-charter (emphasis supplied).

North Front Shipping Services, Inc., is a corporation engaged in the businessof transporting cargo and offers its services indiscriminately to the public. It iswithout doubt a common carrier. As such it is required to observeextraordinary diligence in its vigilance over the goods it transports. 3 Whengoods placed in its care are lost or damaged, the carrier is presumed to havebeen at fault or to have acted negligently. 4 North Front Shipping Services,

Inc., therefore has the burden of proving that it observed extraordinarydiligence in order to avoid responsibility for the lost cargo.

North Front Shipping Services, Inc., proved that the vessel was inspectedprior to actual loading by representatives of the shipper and was found fit totake a load of corn grains. They were also issued Permit to Sail by the CoastGuard. The master of the vessel testified that the corn grains were farm wet


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when loaded. However, this testimony was disproved by the clean bill oflading issued by North Front Shipping Services, Inc., which did not contain anotation that the corn grains were wet and improperly dried. Having been inthe service since 1968, the master of the vessel would have known at theoutset that corn grains that were farm wet and not properly dried wouldeventually deteriorate when stored in sealed and hot compartments as in

hatches of a ship. Equipped with this knowledge, the master of the vessel andhis crew should have undertaken precautionary measures to avoid or lessenthe cargo's possible deterioration as they were presumed knowledgeableabout the nature of such cargo. But none of such measures was taken.

In Compania Maritima v. Court of Appeals 5 we ruled

. . . Mere proof of delivery of the goods in good order to a common carrier,and of their arrival at the place of destination in bad order, makes out primafacie case against the common carrier, so that if no explanation is given as tohow the loss, deterioration or destruction of the goods occurred, the commoncarrier must be held responsible. Otherwise stated, it is incumbent upon thecommon carrier to prove that the loss, deterioration or destruction was dueto accident or some other circumstances inconsistent with its liability . . .

The extraordinary diligence in the vigilance over the goods tendered forshipment requires the common carrier to know and to follow the requiredprecaution for avoiding damage to, or destruction of the goods entrusted to itfor safe carriage and delivery. It requires common carriers to render service

with the greatest skill and foresight and "to use all reasonable means toascertain the nature and characteristics of goods tendered for shipment, andto exercise due care in the handling and stowage, including such methods astheir nature requires" (emphasis supplied).

In fine, we find that the carrier failed to observe the required extraordinarydiligence in the vigilance over the goods placed in its care. The proofspresented by North Front Shipping Services, Inc., were insufficient to rebutthe prima facie presumption of private respondent's negligence, more so ifwe consider the evidence adduced by petitioners.

It is not denied by the insurance companies that the vessel was indeedinspected before actual loading and that North Front 777 was issued a Permitto Sail. They proved the fact of shipment and its consequent loss or damagewhile in the actual possession of the carrier. Notably, the carrier failed tovolunteer any explanation why there was spoilage and how it occurred. Onthe other hand, it was shown during the trial that the vessel had rusty


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bulkheads and the wooden boards and tarpaulins bore heavy concentrationof molds. The tarpaulins used were not new, contrary to the claim of NorthFront Shipping Services, Inc., as there were already several patches on them,hence, making it highly probable for water to enter.

Laboratory analysis revealed that the corn grains were contaminated withsalt water. North Front Shipping Services, Inc., failed to rebut all thesearguments. It did not even endeavor to establish that the loss, destruction ordeterioration of the goods was due to the following: (a) flood, storm,earthquake, lightning, or other natural disaster or calamity; (b) act of thepublic enemy in war, whether international or civil; (c) act or omission of theshipper or owner of the goods; (d) the character of the goods or defects inthe packing or in the containers; (e) order or act of competent publicauthority. 6 This is a closed list. If the cause of destruction, loss ordeterioration is other than the enumerated circumstances, then the carrier isrightly liable therefor.

However, we cannot attribute the destruction, loss or deterioration of thecargo solely to the carrier. We find the consignee Republic Flour MillsCorporation guilty of contributory negligence. It was seasonably notified ofthe arrival of the barge but did not immediately start the unloadingoperations. No explanation was proffered by the consignee as to why therewas a delay of six (6) days. Had the unloading been commenced immediatelythe loss could have been completely avoided or at least minimized. Astestified to by the chemist who analyzed the corn samples, the mold growthwas only at its incipient stage and could still be arrested by drying. The corngrains were not yet toxic or unfit for consumption. For its contributorynegligence, Republic Flour Mills Corporation should share at least 40% of theloss. 7

WHEREFORE, the Decision of the Court of Appeals of 22 December 1994 andits Resolution of 16 February 1995 are REVERSED and SET ASIDE.Respondent North Front Shipping Services, Inc., is ordered to pay petitioners

Tabacalera Insurance Co., Prudential Guarantee & Assurance, Inc., and NewZealand Insurance Co. Ltd., P1,313,660.00 which is 60% of the amount paidby the insurance companies to Republic Flour Mills Corporation, plus interestat the rate of 12% per annum from the time this judgment becomes final until

full payment.

SO ORDERED.

2.) [G.R. No. 106999. June 20, 1996] PHILIPPINE HOME ASSURANCECORPORATION, petitioner, vs. COURT OF APPEALS and EASTERNSHIPPING LINES, INC., respondents.


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D E C I S I O N

KAPUNAN, J.:

Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer inKobe, Japan, the following shipment for carriage to Manila and Cebu, freight

pre-paid and in good order and condition, viz: (a) two (2) boxes internalcombustion engine parts, consigned to William Lines, Inc. under Bill of LadingNo. 042283; (b) ten (10) metric tons (334 bags) ammonium chloride,consigned to Orca's Company under Bill of Lading No. KCE-12; (c) twohundred (200) bags Glue 300, consigned to Pan Oriental Match Companyunder Bill of Lading No. KCE-8; and (d) garments, consigned to Ding Velayounder Bills of Lading Nos. KMA-73 and KMA-74.

While the vessel was off Okinawa, Japan, a small flame was detected on theacetylene cylinder located in the accommodation area near the engine roomon the main deck level. As the crew was trying to extinguish the fire, theacetylene cylinder suddenly exploded sending a flash of flame throughout theaccommodation area, thus causing death and severe injuries to the crew andinstantly setting fire to the whole superstructure of the vessel. The incidentforced the master and the crew to abandon the ship.

Thereafter, SS Eastern Explorer was found to be a constructive total loss andits voyage was declared abandoned.

Several hours later, a tugboat under the control of Fukuda Salvage Co.arrived near the vessel and commenced to tow the vessel for the port ofNaha, Japan.

Fire fighting operations were again conducted at the said port. After the firewas extinguished, the cargoes which were saved were loaded to anothervessel for delivery to their original ports of destination. ESLI charged port.After the fire was extinguished, the cargoes which were saved were loaded toanother vessel for delivery to their original ports of destination. ESLI chargedthe consignees several amounts corresponding to additional freight andsalvage charges, as follows: (a) for the goods covered by Bill of Lading No.

042283, ESLI charged the consignee the sum of P1,927.65, representingsalvage charges assessed against the goods; (b) for the goods covered by Billof Lading No. KCE-12, ESLI charged the consignee the sum of P2,980.64 foradditional freight and P826.14 for salvage charges against the goods; (c) forthe goods covered by Bill of Lading No. KCE-8, ESLI charged the consigneethe sum of P3,292.26 for additional freight and P4,130.68 for salvage chargesagainst the goods; and (d) for the goods under Bills of Lading Nos. KMA-73and KMA-74, ESLI charged the consignee the sum of P8,337.06 for salvage


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charges against the goods.

The charges were all paid by Philippine Home Assurance Corporation (PHAC)under protest for and in behalf of the consignees.

PHAC, as subrogee of the consignees, thereafter filed a complaint before theRegional Trial Court of Manila, Branch 39, against ESLI to recover the sumpaid under protest on the ground that the same were actually damagesdirectly brought about by the fault, negligence, illegal act and/or breach ofcontract of ESLI.

In its answer, ESLI contended that it exercised the diligence required by lawin the handling, custody and carriage of the shipment; that the fire was

caused by an unforeseen event; that the additional freight charges are dueand demandable pursuant to the Bill of Lading;[1] and that salvage chargesare properly collectible under Act No. 2616, known as the Salvage Law.

The trial court dismissed PHAC's complaint and ruled in favor of ESLIratiocinating thus:

The question to be resolved is whether or not the fire on the vessel which wascaused by the explosion of an acetylene cylinder loaded on the same was the

fault or negligence of the defendant.

Evidence has been presented that the SS "Eastern Explorer" was a seaworthyvessel (Deposition of Jumpei Maeda, October 23, 1980, p. 3) and before theship loaded the Acetylene Cylinder No. NCW 875, the same has been tested,checked and examined and was certified to have complied with the requiredsafety measures and standards (Deposition of Senjei Hayashi, October 23,1980, pp. 2-3). When the fire was detected by the crew, fire fightingoperations was immediately conducted but due to the explosion of theacetylene cylinder, the crew were unable to contain the fire and had to

abandon the ship to save their lives and were saved from drowning bypassing vessels in the vicinity. The burning of the vessel rendering it aconstructive total loss and incapable of pursuing its voyage to the Philippineswas, therefore, not the fault or negligence of defendant but a natural disasteror calamity which nobody would like to happen. The salvage operationsconducted by Fukuda Salvage Company (Exhibits "4-A" and "6-A") wasperfectly a legal operation and charges made on the goods recovered werelegitimate charges.


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Act No. 2616, otherwise known as the Salvage Law, is thus applicable to thecase at bar. Section 1 of Act No. 2616 states:

"Section 1. When in case of shipwreck, the vessel or its cargo shall bebeyond the control of the crew, or shall have been abandoned by them, andpicked up and conveyed to a safe place by other persons, the latter shall beentitled to a reward for the salvage.

Those who, not being included in the above paragraph, assist in saving avessel or its cargo from shipwreck, shall be entitled to like reward."

In relation to the above provision, the Supreme Court has ruled in Erlanger &Galinger v. Swedish East Asiatic Co., Ltd., 34 Phil. 178, that three elementsare necessary to a valid salvage claim, namely (a) a marine peril (b) servicevoluntarily rendered when not required as an existing duty or from a specialcontract and (c) success in whole or in part, or that the service renderedcontributed to such success.

The above elements are all present in the instant case. Salvage charges maythus be assessed on the cargoes saved from the vessel. As provided for inSection 13 of the Salvage Law, "The expenses of salvage, as well as thereward for salvage or assistance, shall be a charge on the things salvaged ortheir value." In Manila Railroad Co. v. Macondray Co., 37 Phil. 583, it was alsoheld that "when a ship and its cargo are saved together, the salvageallowance should be charged against the ship and cargo in the proportion oftheir respective values, the same as in a case of general average . . ." Thus,the "compensation to be paid by the owner of the cargo is in proportion tothe value of the vessel and the value of the cargo saved." (Atlantic Gulf andPacific Co. v. Uchida Kisen Kaisha, 42 Phil. 321). (Memorandum forDefendant, Records, pp. 212-213).

With respect to the additional freight charged by defendant from the

consignees of the goods, the same are also validly demandable.

As provided by the Civil Code:

"Article 1174. Except in cases expressly specified by law, or when it is


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otherwise declared by stipulation, or when the nature of the obligationrequire the assumption or risk, no person shall be responsible for thoseevents which could not be foreseen, or which though foreseen, wereinevitable."

"Article 1266. The debtor in obligations to do shall also be released when theprestation becomes legally or physically impossible without the fault of theobligor."

The burning of "EASTERN EXPLORER" while off Okinawa rendered it physicallyimpossible for defendant to comply with its obligation of delivering the goodsto their port of destination pursuant to the contract of carriage. Under Article1266 of the Civil Code, the physical impossibility of the prestationextinguished defendant's obligation.

It is but legal and equitable for the defendant therefore, to demand additionalfreight from the consignees for forwarding the goods from Naha, Japan toManila and Cebu City on board another vessel, the "EASTERN MARS." Thisfinds support under Article 844 of the Code of Commerce which provides asfollows:

"Article 844. A captain who may have taken on board the goods saved fromthe wreck shall continue his course to the port of destination; and on arrival

should deposit the same, with judicial intervention at the disposal of theirlegitimate owners. x x x

The owners of the cargo shall defray all the expenses of this arrival as well asthe payment of the freight which, after taking into consideration thecircumstances of the case, may be fixed by agreement or by a judicialdecision."

Furthermore, the terms and conditions of the Bill of Lading authorize the

imposition of additional freight charges in case of forced interruption orabandonment of the voyage. At the dorsal portion of the Bills of Ladingissued to the consignees is this stipulation:

"12. All storage, transshipment, forwarding or other disposition of cargo at orfrom a port of distress or other place where there has been a forcedinterruption or abandonment of the voyage shall be at the expense of the


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owner, shipper, consignee of the goods or the holder of this bill of lading whoshall be jointly and severally liable for all freight charges and expenses ofevery kind whatsoever, whether payable in advance or not that may beincurred by the cargo in addition to the ordinary freight, whether the servicebe performed by the named carrying vessel or by carrier's other vessels or bystrangers. All such expenses and charges shall be due and payable day by

day immediately when they are incurred."

The bill of lading is a contract and the parties are bound by its terms (Govt. ofthe Philippine Islands vs. Ynchausti and Co., 40 Phil. 219). The provisionquoted is binding upon the consignee.

Defendant therefore, can validly require payment of additional freight fromthe consignee. Plaintiff can not thus recover the additional freight paid bythe consignee to defendant. (Memorandum for Defendant, Record, pp. 215-216).[2]

On appeal to the Court of Appeals, respondent court affirmed the trial court'sfindings and conclusions,[3] hence, the present petition for review before thisCourt on the following errors:

I. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH APPROVAL THETRIAL COURT'S FINDINGS THAT THE BURNING OF THE SS "EASTERN

EXPLORER," RENDERING IT A CONSTRUCTIVE TOTAL LOSS, IS A NATURALDISASTER OR CALAMITY WHICH NOBODY WOULD LIKE TO HAPPEN, DESPITEEXISTING JURISPRUDENCE TO THE CONTRARY.

II. THE RESPONDENT COURT ARBITRARILY RULED THAT THE BURNING OFTHE SS "EASTERN EXPLORER" WAS NOT THE FAULT AND NEGLIGENCE OFRESPONDENT EASTERN SHIPPING LINES.

III. THE RESPONDENT COURT COMMITTED GRAVE ABUSE OF DISCRETION IN

RULING THAT DEFENDANT HAD EXERCISED THE EXTRAORDINARY DILIGENCEIN THE VIGILANCE OVER THE GOODS AS REQUIRED BY LAW.

IV. THE RESPONDENT COURT ARBITRARILY RULED THAT THE MARINE NOTEOF PROTEST AND STATEMENT OF FACTS ISSUED BY THE VESSEL'S MASTERARE NOT HEARSAY DESPITE THE FACT THAT THE VESSEL'S MASTER, CAPT.LICAYLICAY WAS NOT PRESENTED IN COURT, WITHOUT EXPLANATION


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WHATSOEVER FOR HIS NON-PRESENTATION, THUS, PETITIONER WASDEPRIVED OF ITS RIGHT TO CROSS-EXAMINE THE AUTHOR THEREOF.

V. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH APPROVAL THE

TRIAL COURT'S CONCLUSION THAT THE EXPENSES OR AVERAGES INCURREDIN SAVING THE CARGO CONSTITUTE GENERAL AVERAGE.

VI. THE RESPONDENT COURT ERRONEOUSLY ADOPTED THE TRIAL COURT'SRULING THAT PETITIONER WAS LIABLE TO RESPONDENT CARRIER FORADDITIONAL FREIGHT AND SALVAGE CHARGES.[4]

It is quite evident that the foregoing assignment of errors challenges thefindings of fact and the appreciation of evidence made by the trial court and

later affirmed by respondent court. While it is a well-settled rule that onlyquestions of law may be raised in a petition for review under Rule 45 of theRules of Court, it is equally well-settled that the same admits of the followingexceptions, namely: (a) when the conclusion is a finding grounded entirelyon speculation, surmises or conjectures; (b) when the inference made ismanifestly mistaken, absurd or impossible; (c) where there is a grave abuseof discretion; (d) when the judgment is based on a misapprehension of facts;(e) when the findings of fact are conflicting; (f) when the Court of Appeals, inmaking its findings, went beyond the issues of the case and the same iscontrary to the admissions of both appellant and appellee; (g) when thefindings of the Court of Appeals are contrary to those of the trial court; (h)when the findings of fact are conclusions without citation of specific evidence

on which they are based; (i) when the facts set forth in the petition as well asin the petitioners' main and reply briefs are nor disputed by the respondents;and (j) when the finding of fact of the Court of Appeals is premised on thesupposed absence of evidence and is contradicted by the evidence on record.[5] Thus, if there is a showing, as in the instant case, that the findingscomplained of are totally devoid of support in the records, or that they are soglaringly erroneous as to constitute grave abuse of discretion, the same maybe properly reviewed and evaluated by this Court.

It is worthy to note at the outset that the goods subject of the present

controversy were neither lost nor damaged in transit by the fire that razedthe carrier. In fact, the said goods were all delivered to the consignees, evenif the transshipment took longer than necessary. What is at issue therefore isnot whether or not the carrier is liable for the loss, damage, or deteriorationof the goods transported by them but who, among the carrier, consignee orinsurer of the goods, is liable for the additional charges or expenses incurredby the owner of the ship in the salvage operations and in the transshipmentof the goods via a different carrier.


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In absolving respondent carrier of any liability, respondent Court of Appealssustained the trial court's finding that the fire that gutted the ship was anatural disaster or calamity. Petitioner takes exception to this conclusion andwe agree.

In our jurisprudence, fire may not be considered a natural disaster orcalamity since it almost always arises from some act of man or by humanmeans. It cannot be an act of God unless caused by lightning or a naturaldisaster or casualty not attributable to human agency.[6]

In the case at bar, it is not disputed that a small flame was detected on theacetylene cylinder and that by reason thereof, the same exploded despiteefforts to extinguish the fire. Neither is there any doubt that the acetylene

cylinder, obviously fully loaded, was stored in the accommodation area nearthe engine room and not in a storage area considerably far, and in a safedistance, from the engine room. Moreover, there was no showing, and nonewas alleged by the parties, that the fire was caused by a natural disaster orcalamity not attributable to human agency. On the contrary, there is strongevidence indicating that the acetylene cylinder caught fire because of thefault and negligence of respondent ESLI, its captain and its crew.

First, the acetylene cylinder which was fully loaded should not have beenstored in the accommodation area near the engine room where the heat

generated therefrom could cause the acetylene cylinder to explode by reasonof spontaneous combustion. Respondent ESLI should have easily foreseenthat the acetylene cylinder, containing highly inflammable material, was in areal danger of exploding because it was stored in close proximity to theengine room.

Second, respondent ESLI should have known that by storing the acetylenecylinder in the accommodation area supposed to be reserved for passengers,it unnecessarily exposed its passengers to grave danger and injury. Curiouspassengers, ignorant of the danger the tank might have on humans andproperty, could have handled the same or could have lighted and smokecigarettes while repairing in the accommodation area.

Third, the fact that the acetylene cylinder was checked, tested and examinedand subsequently certified as having complied with the safety measures andstandards by qualified experts[7] before it was loaded in the vessel onlyshows to a great extent that negligence was present in the handling of theacetylene cylinder after it was loaded and while it was on board the ship.


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Indeed, had the respondent and its agents not been negligent in storing theacetylene cylinder near the engine room, then that same would not haveleaked and exploded during the voyage.

Verily, there is no merit in the finding of the trial court to which respondentcourt erroneously agreed that the fire was not fault or negligence ofrespondent but a natural disaster or calamity. The records are simplywanting in this regard.

Anent petitioner's objection to the admissibility of Exhibits "4" and "5", theStatement of Facts and the Marine Note of Protest issued by Captain TiburcioA. Licaylicay, we find the same impressed with merit because said documentsare hearsay evidence. Capt. Licaylicay, Master of S.S. Eastern Explorer whoissued the said documents, was not presented in court to testify to the truthof the facts he stated therein; instead, respondent ESLI presented JunpeiMaeda, its Branch Manager in Tokyo and Yokohama, Japan, who evidentlyhad no personal knowledge of the facts stated in the documents at issue. Itis clear from Section 36, Rule 130 of the Rules of Court that any evidence,whether oral or documentary, is hearsay if its probative value is not based onthe personal knowledge of the witness but on the knowledge of some otherperson not on the witness stand. Consequently, hearsay evidence, whetherobjected to or not, has no probative value unless the proponent can showthat the evidence falls within the exceptions to the hearsay evidence rule.[8]It is excluded because the party against whom it is presented is deprived ofhis right and opportunity to cross-examine the persons to whom thestatements or writings are attributed.

On the issue of whether or not respondent court committed an error inconcluding that the expenses incurred in saving the cargo are consideredgeneral average, we rule in the affirmative. As a rule, general or grossaverages include all damages and expenses which are deliberately caused inorder to save the vessel, its cargo, or both at the same time, from a real andknown risk.[9] While the instant case may technically fall within the purviewof the said provision, the formalities prescribed under Article 813[10] and814[11] of the Code of Commerce in order to incur the expenses and causethe damage corresponding to gross average were not complied with.Consequently, respondent ESLI's claim for contribution from the consignees

of the cargo at the time of the occurrence of the average turns to naught.

Prescinding from the foregoing premises, it indubitably follows that the cargoconsignees cannot be made liable to respondent carrier for additional freightand salvage charges. Consequently, respondent carrier must refund toherein petitioner the amount it paid under protest for additional freight andsalvage charges in behalf of the consignee.


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WHEREFORE, the judgment appealed from is hereby REVERSED and SETASIDE. Respondent Eastern Shipping Lines, Inc. is ORDERED to return topetitioner Philippine Home Assurance Corporation the amount it paid underprotest in behalf of the consignees herein.

SO ORDERED.

[G.R. No. 119641. May 17, 1996]

3.) G.R. No. 119706, March 14, 1996 PHILIPPINE AIRLINES, INC.,petitioner, vs.COURT OF APPEALS and GILDA C. MEJIA, respondents.

REGALADO, J.:p

This is definitely not a case of first impression. The incident which eventuatedin the present controversy is a drama of common contentious occurrencebetween passengers and carriers whenever loss is sustained by the former.Withal, the exposition of the factual ambience and the legal precepts in thisadjudication may hopefully channel the assertiveness of passengers and theintransigence of carriers into the realization that at times a bad extrajudicialcompromise could be better than a good judicial victory.

Assailed in this petition for review is the decision of respondent Court ofAppeals in CA-G.R. CV No. 42744 1 which affirmed the decision of the lower

court 2 finding petitioner Philippine Air Lines, Inc. (PAL) liable as follows:

ACCORDINGLY, judgment is hereby rendered ordering defendant PhilippineAir Lines, Inc., to pay plaintiff Gilda C. Mejia:

(1) P30,000.00 by way of actual damages of the microwave oven;

(2) P10,000.00 by way of moral damages;

(3) P20,000.00 by way of exemplary damages;

(4) P10,000.00 as attorney's fee;


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all in addition to the costs of the suit.

Defendant's counterclaim is hereby dismissed for lack of merit. 3

The facts as found by respondent Court of Appeals are as follows:

On January 27, 1990, plaintiff Gilda C. Mejia shipped thru defendant,Philippine Airlines, one (1) unit microwave oven, with a gross weight of 33kilograms from San Francisco, U.S.A. to Manila, Philippines. Upon arrival,however, of said article in Manila, Philippines, plaintiff discovered that itsfront glass door was broken and the damage rendered it unserviceable.

Demands both oral and written were made by plaintiff against the defendantfor the reimbursement of the value of the damaged microwave oven, andtransportation charges paid by plaintiff to defendant company. But thesedemands fell on deaf ears.

On September 25, 1990, plaintiff Gilda C. Mejia filed the instant action fordamages against defendant in the lower court.

In its answer, defendant Airlines alleged inter alia, by way of special and

affirmative defenses, that the court has no jurisdiction over the case; thatplaintiff has no valid cause of action against defendant since it acted only ingood faith and in compliance with the requirements of the law, regulations,conventions and contractual commitments; and that defendant had alwaysexercised the required diligence in the selection, hiring and supervision of itsemployees. 4

What had theretofore transpired at the trial in the court a quo is narrated asfollows:

Plaintiff Gilda Mejia testified that sometime on January 27, 1990, she tookdefendant's plane from San Francisco, U.S.A. for Manila, Philippines (Exh."F"). Amongst her baggages (sic) was a slightly used microwave oven withthe brand name "Sharp" under PAL Air Waybill No. 0-79-1013008-3 (Exh. "A").When shipped, defendant's office at San Francisco inspected it. It was in goodcondition with its front glass intact. She did not declare its value upon theadvice of defendant's personnel at San Francisco.


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When she arrived in Manila, she gave her sister Concepcion C. Dio authorityto claim her baggag(e) (Exh. "G") and took a connecting flight for BacolodCity.

When Concepcion C. Dio claimed the baggag(e) (Exh. "B") with defendant,then with the Bureau of Customs, the front glass of the microwave oven wasalready broken and cannot be repaired because of the danger of radiation.

They demanded from defendant thru Atty. Paco P30,000.00 for the damagesalthough a brand new one costs P40,000.00, but defendant refused to pay.

Hence, plaintiff engaged the services of counsel. Despite demand (Exh. "E")by counsel, defendant still refused to pay.

The damaged oven is still with defendant. Plaintiff is engaged in (the)catering and restaurant business. Hence, the necessity of the oven. Plaintiffsuffered sleepless nights when defendant refused to pay her (for) the brokenoven and claims P10,000.00 moral damages, P20,000.00 exemplarydamages, P10,000.00 attorney's fees plus P300.00 per court appearance andP15,000.00 monthly loss of income in her business beginning February, 1990.

Defendant Philippine Airlines thru its employees Rodolfo Pandes and VicenteVillaruz posited that plaintiff's claim was not investigated until after the filingof the formal claim on August 13, 1990 (Exh. "6" also Exh. "E"). During theinvestigations, plaintiff failed to submit positive proof of the value of thecargo. Hence her claim was denied.

Also plaintiff's claim was filed out of time under paragraph 12, a (1) of the AirWaybill (Exh. "A", also Exh. "1") which provides: "(a) the person entitled todelivery must make a complaint to the carrier in writing in case: (1) of visibledamage to the goods, immediately after discovery of the damage and at thelatest within 14 days from the receipt of the goods. 5

As stated at the outset, respondent Court of Appeals similarly ruled in favorof private respondent by affirming in full the trial court's judgment in CivilCase No. 6210, with costs against petitioner. 6 Consequently, petitioner nowimpugns respondent appellate court's ruling insofar as it agrees with (1) theconclusions of the trial court that since the air waybill is a contract ofadhesion, its provisions should be strictly construed against herein petitioner;(2) the finding of the trial court that herein petitioner's liability is not limited


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by the provisions of the air waybill; and (3) the award by the trial court toprivate respondent of moral and exemplary damages, attorney's fees andlitigation expenses.

The trial court relied on the ruling in the case of Fieldmen's Insurance Co.,Inc. vs. Vda. De Songco, et al. 7 in finding that the provisions of the airwaybill should be strictly construed against petitioner. More particularly, thecourt below stated its findings thus:

In this case, it is seriously doubted whether plaintiff had read the printedconditions at the back of the Air Waybill (Exh. "1"), or even if she had, if shewas given a chance to negotiate on the conditions for loading her microwaveoven. Instead she was advised by defendant's employee at San Francisco,U.S.A., that there is no need to declare the value of her oven since it is notbrand new. Further, plaintiff testified that she immediately submitted aformal claim for P30,000.00 with defendant. But their claim was referred fromone employee to another th(e)n told to come back the next day, and the nextday, until she was referred to a certain Atty. Paco. When they got tired andfrustrated of coming without a settlement of their claim in sight, theyconsulted a lawyer who demanded from defendant on August 13, 1990 (Exh."E", an[d] Exh. "6").

The conclusion that inescapably emerges from the above findings of fact is toconcede it with credence. . . . . 8

Respondent appellate court approved said findings of the trial court in thismanner:

We cannot agree with defendant-appellant's above contention. Under ourjurisprudence, the Air Waybill is a contract of adhesion considering that allthe provisions thereof are prepared and drafted only by the carrier (SweetLines v. Teves, 83 SCRA 361). The only participation left of the other party isto affix his signature thereto (BPI Credit Corporation vs. Court of Appeals, 204SCRA 601; Saludo, Jr. vs. C.A., 207 SCRA 498; Maersk vs. Court of Appeals,

222 SCRA 108, among the recent cases). In the earlier case of Angeles v.Calasanz, 135 SCRA 323, the Supreme Court ruled that "the terms of acontract [of adhesion] must be interpreted against the party who drafted thesame." . . . . 9

Petitioner airlines argues that the legal principle enunciated in Fieldmen'sInsurance does not apply to the present case because the provisions of the


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contract involved here are neither ambiguous nor obscure. The front portionof the air waybill contains a simple warning that the shipment is subject tothe conditions of the contract on the dorsal portion thereof regarding thelimited liability of the carrier unless a higher valuation is declared, as well asthe reglementary period within which to submit a written claim to the carrierin case of damage or loss to the cargo. Granting that the air waybill is a

contract of adhesion, it has been ruled by the Court that such contracts arenot entirely prohibited and are in fact binding regardless of whether or notrespondent herein read the provisions thereof. Having contracted theservices of petitioner carrier instead of other airlines, private respondent ineffect negotiated the terms of the contract and thus became bound thereby.10

Counsel for private respondent refutes these arguments by saying that dueto her eagerness to ship the microwave oven to Manila, private respondentassented to the terms and conditions of the contract without any opportunity

to question or change its terms which are practically on a "take-it-or-leave-it"basis, her only participation therein being the affixation of her signature.Further, reliance on the Fieldmen's Insurance case is misplaced since it is notthe ambiguity or obscurity of the stipulation that renders necessary the strictinterpretation of a contract of adhesion against the drafter, but thepeculiarity of the transaction wherein one party, normally a corporation,drafts all the provisions of the contract without any participation whatsoeveron the part of the other party other than affixment of signature. 11

A review of jurisprudence on the matter reveals the consistent holding of theCourt that contracts of adhesion are not invalid per se and that it has onnumerous occasions upheld the binding effect thereof. 12 As explained inOng Yiu vs. Court of Appeals, et al., supra:

. . . . Such provisions have been held to be a part of the contract of carriage,and valid and binding upon the passenger regardless of the latter's lack ofknowledge or assent to the regulation. It is what is known as a contract of"adhesion," in regards which it has been said that contracts of adhesionwherein one party imposes a ready-made form of contract on the other, asthe plane ticket in the case at bar, are contracts not entirely prohibited. Theone who adheres to the contract is in reality free to reject it entirely; if he

adheres, he gives his consent. . . , a contract limiting liability upon an agreedvaluation does not offend against the policy of the law forbidding one fromcontracting against his own negligence.

As rationalized in Saludo, Jr. vs. Court of Appeals, et al., supra:


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. . . , it should be borne in mind that a contract of adhesion may be struckdown as void and unenforceable, for being subversive of public policy, onlywhen the weaker party is imposed upon in dealing with the dominantbargaining party and is reduced to the alternative of taking it or leaving it,completely deprived of the opportunity to bargain on equal footing. . . . .

but subject to the caveat that

. . . . Just because we have said that Condition No. 5 of the airway bill isbinding upon the parties to and fully operative in this transaction, it does notmean, and let this serve as fair warning to respondent carriers, that they canat all times whimsical seek refuge from liability in the exculpatory sanctuaryof said Condition No. 5 . . . .

The peculiar nature of such contracts behooves the Court to closely scrutinizethe factual milieu to which the provisions are intended to apply. Thus, just asconsistently and unhesitatingly, but without categorically invalidating suchcontracts, the Court has construed obscurities and ambiguities in therestrictive provisions of contracts of adhesion strictly albeit not unreasonablyagainst the drafter thereof when justified in light of the operative facts andsurrounding circumstances. 13

We find nothing objectionable about the lower court's reliance upon the

Fieldmen's Insurance case, the principles wherein squarely apply to thepresent petition. The parallelism between the aforementioned case and thisone is readily apparent for, just as in the instant case, it is the binding effectof the provisions in a contract of adhesion (an insurance policy in Fieldmen'sInsurance) that is put to test.

A judicious reading of the case reveals that what was pivotal in the judgmentof liability against petitioner insurance company therein, and necessarilyinterpreting the provisions of the insurance policy as ineffective, was thefinding that the representations made by the agent of the insurance companyrendered it impossible to comply with the conditions of the contract in

question, rather than the mere ambiguity of its terms. The extendedpronouncements regarding strict construction of ambiguous provisions in anadhesion contract against its drafter, which although made by the Court asan aside but has perforce evolved into a judicial tenet over time, was actuallyan incidental statement intended to emphasize the duty of the court toprotect the weaker, as against the more dominant, party to a contract, aswell as to prevent the iniquitous situation wherein the will of one party isimposed upon the other in the course of negotiation.


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Thus, there can be no further question as to the validity of the terms of theair waybill, even if the same constitutes a contract of adhesion. Whether ornot the provisions thereof particularly on the limited liability of the carrier arebinding on private respondent in this instance must be determined from the

facts and circumstances involved vis-a-vis the nature of the provisions soughtto be enforced, taking care that equity and fair play should characterize thetransaction under review.

On petitioner's insistence that its liability for the damage to privaterespondent's microwave oven, if any, should be limited by the provisions ofthe air waybill, the lower court had this to say:

By and large, defendant's evidence is anchored principally on plaintiff's

alleged failure to comply with paragraph 12, a(1) (Exh. "1-C-2") of the Airwaybill (Exh. "A," also Exh. "1"), by filing a formal claim immediately afterdiscovery of the damage. Plaintiff filed her formal claim only on August 13,1990 (Exh. "6", also Exh. "E"). And, failed to present positive proof on thevalue of the damaged microwave oven. Hence, the denial of her claim.

This Court has misgivings about these pretensions of defendant.

xxx xxx xxx

Finally, the Court finds no merit to defendant's contention that under theWarsaw Convention, its liability if any, cannot exceed U.S. $20.00 based onweight as plaintiff did not declare the contents of her baggage nor payadditional charges before the flight. 14

The appellate court declared correct the non-application by the trial court ofthe limited liability of therein defendant-appellant under the "Conditions of

the Contract" contained in the air waybill, based on the ruling in CathayPacific Airways, Ltd. vs. Court of Appeals, et al., 15 which substantiallyenunciates the rule that while the Warsaw Convention has the force andeffect of law in the Philippines, being a treaty commitment by thegovernment and as a signatory thereto, the same does not operate as anexclusive enumeration of the instances when a carrier shall be liable forbreach of contract or as an absolute limit of the extent of liability, nor does itpreclude the operation of the Civil Code or other pertinent laws.


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Petitioner insists that both respondent court and the trial court erred infinding that petitioner's liability, if any, is not limited by the provisions of theair waybill, for, as evidence of the contract of carriage between petitioner andprivate respondent, it substantially states that the shipper certifies to the

correctness of the entries contained therein and accepts that the carrier'sliability is limited to US $20 per kilogram of goods lost, damaged or destroyedunless a value is declared and a supplementary charge paid. Inasmuch as nosuch declaration was made by private respondent, as she admitted duringcross-examination, the liability of petitioner, if any, should be limited to 28kilograms multiplied by US $20, or $560. Moreover, the validity of theseconditions has been upheld in the leading case of Ong Yiu vs. Court ofAppeals, et al., supra, and subsequent cases, for being a mere reiteration ofthe limitation of liability under the Warsaw Convention, which treaty has theforce and effect of law. 16

It is additionally averred that since private respondent was merely advised,not ordered, that she need not declare a higher value for her cargo, the finaldecision of refraining from making such a declaration fell on privaterespondent and should not put the petitioner in estoppel from invoking itslimited liability. 17

In refutation, private respondent explains that the reason for the absence of adeclaration of a higher value was precisely because petitioner's personnel inSan Francisco, U.S.A. advised her not to declare the value of her cargo, whichtestimony has not at all been rebutted by petitioner. This being so, petitioner

is estopped from faulting private respondent for her failure to declare thevalue of the microwave oven. 18

The validity of provisions limiting the liability of carriers contained in bills oflading have been consistently upheld for the following reason:

. . . . The stipulation in the bill of lading limiting the common carrier's liabilityto the value of goods appearing in the bill, unless the shipper or ownerdeclares a greater value, is valid and binding. The limitation of the carrier'sliability is sanctioned by the freedom of the contracting parties to establishsuch stipulations, clauses, terms, or conditions as they may deemconvenient, provided they are not contrary to law, morals, good customs andpublic policy. . . . . 19

However, the Court has likewise cautioned against blind reliance on adhesioncontracts where the facts and circumstances warrant that they should be


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disregarded. 20

In the case at bar, it will be noted that private respondent signified anintention to declare the value of the microwave oven prior to shipment, but

was explicitly advised against doing so by PAL's personnel in San Francisco,U.S.A., as borne out by her testimony in court:

xxx xxx xxx

Q Did you declare the value of the shipment?

A No. I was advised not to.

Q Who advised you?

A At the PAL Air Cargo. 21

It cannot be denied that the attention of PAL through its personnel in SanFrancisco was sufficiently called to the fact that private respondent's cargo

was highly susceptible to breakage as would necessitate the declaration of itsactual value. Petitioner had all the opportunity to check the condition andmanner of packing prior to acceptance for shipment, 22 as well as during thepreparation of the air waybill by PAL's Acceptance Personnel based oninformation supplied by the shipper, 23 and to reject the cargo if the contentsor the packing did not meet the company's required specifications. Certainly,PAL could not have been otherwise prevailed upon to merely accept thecargo.

While Vicente Villaruz, officer-in-charge of the PAL Import Section at the time

of incident, posited that there may have been inadequate and improperpacking of the cargo, 24 which by itself could be a ground for refusingcarriage of the goods presented for shipment, he nonetheless admitted oncross-examination that private respondent's cargo was accepted by PAL in itsSan Francisco office:

ATTY. VINCO


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So that, be that as it may, my particular concern is that, it is the PALpersonnel that accepts the baggage?

WITNESS

Yes, sir.

ATTY. VINCO

Also, if he comes from abroad like in this particular case, it is the PAL

personnel who accepts the baggage?

WITNESS

Yes, sir.

ATTY. VINCO

And the PAL personnel may or may not accept the baggage?

WITNESS

Yes, sir.

ATTY. VINCO

According to what is stated as in the acceptance of the cargo, it is to the bestinterest of the airlines, that is, he want(s) also that the airlines would be freefrom any liability. Could that be one of the grounds for not admitting abaggage?


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WITNESS

Safety is number one (1)

xxx xxx xxx

ATTY. VINCO

So, this baggage was accepted and admitted in San Francisco?

WITNESS

Yes, sir.

ATTY. VINCO

And you could not show any document to the Court that would suggest thatthis baggage was denied admittance by your office at San Francisco?

WITNESS

No, I cannot show.

ATTY. VINCO

Now, can you show any document that would suggest that there wasinsufficient pac(k)aging on this particular baggage from abroad?


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WITNESS

No, sir. 25

In response to the trial court's questions during the trial, he also stated thatwhile the passenger's declaration regarding the general or fragile characterof the cargo is to a certain extent determinative of its classification, PALnevertheless has and exercises discretion as to the manner of handlingrequired by the nature of the cargo it accepts for carriage. He further opinedthat the microwave oven was only a general, not a fragile, cargo which didnot require any special handling. 26

There is no absolute obligation on the part of a carrier to accept a cargo.

Where a common carrier accepts a cargo for shipment for valuableconsideration, it takes the risk of delivering it in good condition as when itwas loaded. And if the fact of improper packing is known to the carrier or itspersonnel, or apparent upon observation but it accepts the goodsnotwithstanding such condition, it is not relieved of liability for loss or injuryresulting therefrom. 27

The acceptance in due course by PAL of private respondent's cargo as packedand its advice against the need for declaration of its actual value operated asan assurance to private respondent that in fact there was no need for such a

declaration. Petitioner can hardly be faulted for relying on therepresentations of PAL's own personnel.

In other words, private respondent Mejia could and would have complied withthe conditions stated in the air waybill, i.e., declaration of a higher value andpayment of supplemental transportation charges, entitling her to recovery ofdamages beyond the stipulated limit of US $20 per kilogram of cargo in theevent of loss or damage, had she not been effectively prevented from doingso upon the advice of PAL's personnel for reasons best known to themselves.

As pointed out by private respondent, the aforestated facts were not deniedby PAL in any of its pleadings nor rebutted by way of evidence presented inthe course of the trial, and thus in effect it judicially admitted that such anadvice was given by its personnel in San Francisco, U.S.A. Petitioner,therefore, is estopped from blaming private respondent for not declaring thevalue of the cargo shipped and which would have otherwise entitled her torecover a higher amount of damages. The Court's bidding in the Fieldmen'sInsurance case once again rings true:


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. . . As estoppel is primarily based on the doctrine of good faith and theavoidance of harm that will befall an innocent party due to its injuriousreliance, the failure to apply it in this case would result in gross travesty of

justice.

We likewise uphold the lower court's finding that private respondent compliedwith the requirement for the immediate filing of a formal claim for damagesas required in the air waybill or, at least, we find that there was substantialcompliance therewith.

Private respondent testified that she authorized her sister, Concepcion Dio,to claim her cargo consisting of a microwave oven since the former had totake a connecting flight to Bacolod City on the very same afternoon of the

day of her arrival. 28 As instructed, Concepcion Dio promptly proceeded toPAL's Import Section the next day to claim the oven. Upon discovering thatthe glass door was broken, she immediately filed a claim by way of thebaggage freight claim 29 on which was duly annotated the damage sustainedby the oven. 30

Her testimony relates what took place thereafter:

ATTY. VINCO

So, after that inspection, what did you do?

WITNESS

After that annotation placed by Mr. Villaruz, I went home and I followed it upthe next day with the Clerk of PAL cargo office.

ATTY. VINCO

What did the clerk tell you?


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WITNESS

She told me that the claim was being processed and I made several phonecalls after that. I started my follow-ups February up to June 1990.

ATTY. VINCO

And what results did those follow-ups produce?

WITNESS

All they said (was) that the document was being processed, that they werewaiting for Atty. Paco to report to the office and they could refer the matterto Atty. Paco.

ATTY. VINCO

Who is this Atty. Paco?

WITNESS

He was the one in-charge of approving our claim.

ATTY. VINCO

Were you able to see Atty. Paco?

WITNESS

Yes, sir. I personally visited Atty. Paco together with my auntie who was a


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former PAL employee.

xxx xxx xxx

ATTY. VINCO

So, what did you do, did you make a report or did you tell Atty. Paco of yourscouting around for a possible replacement?

WITNESS

I did call him back at his office. I made a telephone call.

ATTY. VINCO

And what answer did Atty. Paco make after you have reported back to him?

WITNESS

They told me that they were going to process the claim based on the pricethat I gave them but there was no definite result.

ATTY. VINCO

How many times did you go and see Atty. Paco regarding the claim of yoursister?

WITNESS

I made one personal visit and several follow-up calls. With Atty. Paco, I made


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one phone call but I made several phone calls with his secretary or the clerkat PAL cargo office and I was trying to locate him but unfortunately, he wasalways out of his office. 31

PAL claims processor, Rodolfo Pandes, * confirmed having received thebaggage freight claim on January 30, 1990 32 and the referral to andextended pendency of the private respondent's claim with the office of Atty.Paco, to wit:

ATTY. VINCO:

Q And you did instruct the claimant to see the Claim Officer of thecompany, right?

WITNESS:

A Yes, sir.

ATTY. VINCO:

Q And the Claim Officer happened to be Atty. Paco?

WITNESS:

A Yes, sir.

ATTY. VINCO:

Q And you know that the plaintiff thru her authorized representativeConcepcion Dio, who is her sister had many times gone to Atty. Paco, inconnection with this claim of her sister?


30/67

WITNESS:

A Yes, sir.

ATTY. VINCO:

Q As a matter of fact even when the complaint was already filed here inCourt the claimant had continued to call about the settlement of her claimwith Atty. Paco, is that correct?

xxx xxx xxx

WITNESS:

A Yes, sir.

ATTY. VINCO:

Q You know this fact because a personnel saw you in one of the pre-trialhere when this case was heard before the sala of Judge Moscardon, is thatcorrect?

WITNESS:

A Yes.

ATTY. VINCO:

Q In other words, the plaintiff rather had never stop(ped) in her desire foryour company to settle this claim, right?


31/67

WITNESS:

A Yes, sir. 33

Considering the abovementioned incidents and private respondent Mejia'sown zealous efforts in following up the claim, 34 it was clearly not her faultthat the letter of demand for damages could only be filed, after months ofexasperating follow-up of the claim, on August 13, 1990. 35 If there was anyfailure at all to file the formal claim within the prescriptive periodcontemplated in the air waybill, this was largely because of PAL's own doing,the consequences of which cannot, in all fairness, be attributed to privaterespondent.

Even if the claim for damages was conditioned on the timely filing of a formalclaim, under Article 1186 of the Civil Code that condition was deemedfulfilled, considering that the collective action of PAL's personnel in tossingaround the claim and leaving it unresolved for an indefinite period of timewas tantamount to "voluntarily preventing its fulfillment." On grounds ofequity, the filing of the baggage freight claim, which sufficiently informed PALof the damage sustained by private respondent's cargo, constitutedsubstantial compliance with the requirement in the contract for the filing of aformal claim.

All told, therefore, respondent appellate court did not err in ruling that theprovision on limited liability is not applicable in this case. We, however, notein passing that while the facts and circumstances of this case do not call forthe direct application of the provisions of the Warsaw Convention, it shouldbe stressed that, indeed, recognition of the Warsaw Convention does notpreclude the operation of the Civil Code and other pertinent laws in thedetermination of the extent of liability of the common carrier. 36

The Warsaw Convention, being a treaty to which the Philippines is asignatory, is as much a part of Philippine law as the Civil Code, Code ofCommerce and other municipal special laws. 37 The provisions therein

contained, specifically on the limitation of carrier's liability, are operative inthe Philippines but only in appropriate situations.

Petitioner ascribes ultimate error in the award of moral and exemplarydamages and attorney's fees in favor of private respondent in that other thanthe statement of the trial court that petitioner acted in bad faith in denyingprivate respondent's claim, which was affirmed by the Court of Appeals, there


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is no evidence on record that the same is true. The denial of privaterespondent's claim was supposedly in the honest belief that the same hadprescribed, there being no timely formal claim filed; and despite having beengiven an opportunity to submit positive proof of the value of the damagedmicrowave oven, no such proof was submitted. Petitioner insists that itsfailure to deliver the oven in the condition in which it was shipped could

hardly be considered as amounting to bad faith. 38

Private respondent counters that petitioner's failure to deliver the microwaveoven in the condition in which it was received can be described as grossnegligence amounting to bad faith, on the further consideration that it failedto prove that it exercised the extraordinary diligence required by law, andthat no explanation whatsoever was given as to why the front glass of theoven was broken. 39

The trial court justified its award of actual, moral and exemplary damages,and attorney's fees in favor of private respondent in this wise:

Since the plaintiff's baggage destination was the Philippines, Philippine lawgoverns the liability of the defendant for damages for the microwave oven.

The provisions of the New Civil Code on common carriers are Article(s) 1733,1735 and 1753 . . . .

xxx xxx xxx

In this case, defendant failed to overcome, not only the presumption butmore importantly, plaintiff's evidence that defendant's negligence was theproximate cause of the damages of the microwave oven. Further plaintiff hasestablished that defendant acted in bad faith when it denied the former'sclaim on the ground that the formal claim was filed beyond the period asprovided in paragraph 12 (a-1) (Exh. "1-C-2") of the Air Waybill (Exh. "1", also

Exh. "A"), when actually, Concepcion Dio, sister of plaintiff has immediatelyfiled the formal claim upon discovery of the damage. 40

Respondent appellate court was in full agreement with the trial court's findingof bad faith on the part of petitioner as a basis for the award of theaforestated damages, declaring that:


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As to the last assigned error, a perusal of the facts and law of the casereveals that the lower court's award of moral and exemplary damages,attorney's fees and costs of suit to plaintiff-appellee is in accordance withcurrent laws and jurisprudence on the matter. Indeed, aside from the fact

that defendant-appellant acted in bad faith in breaching the contract and indenying plaintiff's valid claim for damages, plaintiff-appellee underwentprofound distress, sleepless nights, and anxiety upon knowledge of herdamaged microwave oven in possession of defendant-appellant, entitling herto the award of moral and exemplary damages (Cathay Pacific Airways, Ltd.vs. C.A., supra; Arts. 2219 & 2221, New Civil Code), and certainly plaintiff-appellant's unjust refusal to comply with her valid demand for payment,thereby also entitling her to reasonable attorney's fees [Art. 2208 (2) and(11), id.]. 41

It will be noted that petitioner never denied that the damage to themicrowave oven was sustained while the same was in its custody. Thepossibility that said damage was due to causes beyond the control of PAL haseffectively been ruled out since the entire process in handling of the cargo from the unloading thereof from the plane, the towing and transfer to the PALwarehouse, the transfer to the Customs examination area, and its releasethereafter to the shipper was done almost exclusively by, and with theintervention or, at the very least, under the direct supervision of aresponsible PAL personnel. 42

The very admissions of PAL, through Vicente Villaruz of its Import Section, as

follows:

ATTY. VINCO

So that, you now claim, Mr. Witness, that from the time the cargo wasunloaded from the plane until the time it reaches the Customs counter whereit was inspected, all the way, it was the PAL personnel who did all thesethings?

WITNESS

Yes, however, there is also what we call the Customs storekeeper and theCustoms guard along with the cargo.


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ATTY. VINCO

You made mention about a locator?

WITNESS

Yes, sir.

ATTY. VINCO

This locator, is he an employee of the PAL or the Customs?

WITNESS

He is a PAL employee. 43

lead to the inevitable conclusion that whatever damage may have beensustained by the cargo is due to causes attributable to PAL's personnel or, atall events, under their responsibility.

Moreover, the trial court underscored the fact that petitioner was not able toovercome the statutory presumption of negligence in Article 1735 which, as acommon carrier, it was laboring under in case of loss, destruction ordeterioration of goods, through proper showing of the exercise ofextraordinary diligence. Neither did it prove that the damage to themicrowave oven was because of any of the excepting causes under Article

1734, all of the same Code. Inasmuch as the subject item was received inapparent good condition, no contrary notation or exception having beenmade on the air waybill upon its acceptance for shipment, the fact that it wasdelivered with a broken glass door raises the presumption that PAL'spersonnel were negligent in the carriage and handling of the cargo. 44

Furthermore, there was glaringly no attempt whatsoever on the part of


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petitioner to explain the cause of the damage to the oven. The unexplainedcause of damage to private respondent's cargo constitutes grosscarelessness or negligence which by itself justifies the present award ofdamages. 45 The equally unexplained and inordinate delay in acting on theclaim upon referral thereof to the claims officer, Atty. Paco, and thenoncommittal responses to private respondent's entreaties for settlement of

her claim for damages belies petitioner's pretension that there was no badfaith on its part. This unprofessional indifference of PAL's personnel despitefull and actual knowledge of the damage to private respondent's cargo, justto be exculpated from liability on pure technicality and bureaucraticsubterfuge, smacks of willful misconduct and insensitivity to a passenger'splight tantamount to bad faith 46 and renders unquestionable petitioner'sliability for damages. In sum, there is no reason to disturb the findings of thetrial court in this case, especially with its full affirmance by respondent Courtof Appeals.

On this note, the case at bar goes into the annals of our jurisprudence aftersix years and recedes into the memories of our legal experience as justanother inexplicable inevitability. We will never know exactly how many man-hours went into the preparation, litigation and adjudication of this simpledispute over an oven, which the parties will no doubt insist they contested asa matter of principle. One thing, however, is certain. As long as the first letterin "principle" is somehow outplaced by the peso sign, the courts will alwayshave to resolve similar controversies although mutual goodwill could havedispensed with judicial recourse.

IN VIEW OF ALL OF THE FOREGOING, the assailed judgment of respondentCourt of Appeals is AFFIRMED in toto.

SO ORDERED.

4.) PHILIPPINE AIRLINES, INC., petitioner, vs. COURT OF APPEALS,DR. JOSEFINO MIRANDA and LUISA MIRANDA, respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF AIRCARRIAGE; A RELATION ATTENDED WITH PUBLIC DUTY; DISCOURTEOUSCONDUCT TOWARDS A PASSENGER GIVES RISE FOR AN ACTION FORDAMAGES. - The Court has time and again ruled, and it cannot be over-emphasized, that a contract of air carriage generates a relation attended witha public duty and any discourteous conduct on the part of a carriersemployee toward a passenger gives the latter an action for damages and,more so, where there is bad faith. While it may be true that there was no


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direct evidence on record of blatant rudeness on the part of PAL employeestowards the Mirandas, the fact that private respondents were practicallycompelled to haggle for accommodations, a situation unbefitting persons oftheir stature, is rather demeaning and it partakes of discourtesy magnified byPALs condescending attitude. Moreover, it cannot be denied that the PALemployees herein concerned were definitely less than candid, to put it mildly,

when they withheld information from private respondents that they couldactually be accommodated in a hotel of their choice.

2. REMEDIAL LAW; EVIDENCE; FINDINGS OF THE TRIAL AND APPELLATECOURT ON THE EXISTENCE OF BAD FAITH ON THE PART OF THE CARRIER,GENERALLY NOT DISTURBED ON APPEAL. - It is settled that bad faith must beduly proved and not merely presumed. The existence of bad faith, being afactual question, and the Supreme Court not being a trier of facts, thefindings thereon of the trial court as well as of the Court of Appeals shall notbe disturbed on appeal and are entitled to great weight and respect. Said

findings are final and conclusive upon the Supreme Court except, inter alia,where the findings of the Court of Appeals and the trial court are contrary toeach other.

3. ID.; ID.; ID.; CASE AT BAR. - It is evident that the issues raised in thispetition are the correctness of the factual findings of the Court of Appeals ofbad faith on the part of petitioner and the award of damages against it. ThisCourt has consistently held that the findings of the Court of Appeals and theother lower courts are as a rule binding upon it, subject to certain exceptionscreated by case law. As nothing in the record indicates any of suchexceptions, the factual conclusions of the appellate court must be affirmed.

4. CIVIL LAW; DAMAGES; MORAL DAMAGES; RECOVERABLE IN A BREACH OFCONTRACT ATTENDED WITH FRAUD OR BAD FAITH; INATTENTION TO ANDLACK OF CARE FOR INTERESTS OF PASSENGERS AMOUNTS TO BAD FAITH. - Itis now firmly settled that moral damages are recoverable in suits predicatedon breach of a contract of carriage where it is proved that the carrier wasguilty of fraud or bad faith. Inattention to and lack of care for the interests ofits passengers who are entitled to its utmost consideration, particularly as totheir convenience, amount to bad faith which entitles the passenger to anaward of moral damages. What the law considers as bad faith which may

furnish the ground for an award of moral damages would be bad faith insecuring the contract and in the execution thereof, as well as in theenforcement of its terms, or any other kind of deceit. Such unprofessionaland prescribed conduct is attributable to petitioner airline in the case at barand the adverse doctrinal rule is accordingly applicable to it.

5. ID.; ID.; ID.; AWARDED TO COMPENSATE PLAINTIFFS INJURIES. - It must,


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of course, be borne in mind that moral damages are not awarded to penalizethe defendant but to compensate the plaintiff for the injuries he may havesuffered.

6. ID.; ID.; EXEMPLARY DAMAGES; AWARDED WHERE DEFENDANT ACTED INWANTON, FRAUDULENT AND OPPRESSIVE MANNER. - In a contractual orquasi-contractual relationship, exemplary damages, on the other hand, maybe awarded only if the defendant had acted in a wanton, fraudulent, reckless,oppressive or malevolent manner.

7. ID.; ID.; ATTORNEYS FEES; AWARDED WHERE THERE IS A FINDING OF BADFAITH; CASE AT BAR. - Attorneys fees in the concept of damages may beawarded where there is a finding of bad faith. The evidence on record amplysustains, and we correspondingly find, that the awards assessed againstpetitioner on the aforestated items of damages are justified and reasonable.

8. ID.; OBLIGATIONS AND CONTRACTS; CONTRACT OF AIR CARRIAGE;LIABILITY OF CARRIER NOT LIMITED BY THE PROVISIONS OF WARSAWCONVENTION. - Although the Warsaw Convention has the force and effect oflaw in this country, being a treaty commitment assumed by the Philippinegovernment, said convention does not operate as an exclusive enumerationof the instances for declaring a carrier liable for breach of contract of carriageor as an absolute limit of the extent of that liability. The Warsaw Conventiondeclares the carrier liable in the enumerated cases and under certainlimitations. However, it must not be construed to preclude the operation of

the Civil Code and pertinent laws. It does not regulate, much less exempt, thecarrier from liability for damages for violating the rights of its passengersunder the contract of carriage, especially if willful misconduct on the part ofthe carriers employees is found or established. (Cathay Pacific Airways, Ltd.vs. Court of Appeals, et al., G.R. No. 60501, March 5, 1993)

APPEARANCES OF COUNSEL

Siguion Reyna Montecillo & Ongsiako for petitioner.

Noel P. Catre for private respondents.

D E C I S I O N

REGALADO, J.:


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In this appeal by certiorari, petitioner Philippine Airlines, Inc. (PAL) assails thedecision of respondent Court of Appeals in CA-G.R. CV No. 291471 whichaffirmed the judgment of the trial court finding herein petitioner liable asfollows:

Wherefore, premises considered, judgment is hereby rendered ordering thedefendant, Philippine Airlines or PAL, to pay to the plaintiffs, Dr. JosefinoMiranda and Luisa Miranda, the sum of P100,000.00 as moral damages;P30,000.00 as exemplary or corrective damages; P 10,000.00 as attorneysfees; and the costs.2

The factual antecedents of the present petition reveal that sometime in May,1988, Dr. Josefino Miranda and his wife, Luisa, who were residents of SurigaoCity, went to the United States of America on a regular flight of PhilippineAirlines, Inc. (PAL). On June 19, 1988, after a stay of over a month there, theyobtained confirmed bookings from PALs San Francisco Office for PAL FlightPR 101 from San Francisco to Manila via Honolulu on June 21, 1988; PALFlight PR 851 from Manila to Cebu on June 24, 1988; and PAL Flight PR 905from Cebu to Surigao also on June 24, 1988.

Accordingly, on June 21, 1988, private respondents boarded PAL Flight PR101 in San Francisco with five (5) pieces of baggage. After a stopover atHonolulu, and upon arrival in Manila on June 23, 1988, they were told by thePAL personnel that their baggage consisting of two balikbayan boxes, twopieces of luggage and one fishing rod case were off-loaded at Honolulu,

Hawaii due to weight limitations. Consequently, private respondents missedtheir connecting flight from Manila to Cebu City, as originally scheduled, sincethey had to wait for their baggage which arrived the following day, June 24,1988, after their pre-scheduled connecting flight had left. They consequentlyalso missed their other scheduled connecting flight from Cebu City to SurigaoCity.

On June 25, 1988, they departed for Cebu City and therefrom privaterespondents had to transfer to PAL Flight 471 for Surigao City. On the way toSurigao City, the pilot announced that they had to return to Mactan Airport

due to some mechanical problem. While at Mactan Airport, the passengerswere provided by PAL with lunch and were booked for the afternoon flight toSurigao City. However, said flight was also canceled.

Since there were no more flights for Surigao City that day, privaterespondents asked to be billeted at the Cebu Plaza Hotel where they usuallystay whenever they happen to be in Cebu City. They were, however, told by


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the PAL employees that they could not be accommodated at said hotelsupposedly because it was fully booked. Contrarily, when Dr. Miranda calledthe hotel, he was informed that he and his wife could be accommodatedthere. Although reluctant at first, PAL eventually agreed to privaterespondents overnight stay at said hotel. Oscar Jereza, PAL duty manager,approved the corresponding hotel authority with standard meals. It was only

after private respondents insistence that their meals be ordered a la cartethat they were allowed to do so by PAL provided that they sign for theirorders.

Inasmuch as the shuttle bus had already left by the time private respondentswere ready to go to the hotel, PAL offered them P 150.00 to include the farefor the return trip to the airport. Dr. Miranda asked for P 150.00 more as heand his wife, along with all of their baggages, could not be accommodated in

just one taxi, aside from the need for tipping money for hotel boys. Uponrefusal of this simple request, Dr. Miranda then declared that he would forego

the amenities offered by PAL. Thus, the voucher for P 150.00 and theauthority for the hotel accommodations prepared by PAL were voided due toprivate respondents decision not to avail themselves thereof.

To aggravate the muddled situation, when private respondents tried toretrieve their baggage, they were told this time that the same were loadedon another earlier PAL flight to Surigao City. Thus, private respondentsproceeded to the hotel sans their baggage and of which they were deprivedfor the remainder of their trip. Private respondents were finally able to leaveon board the first PAL flight to Surigao City only on June 26, 1988. Thereafter,they instituted an action for damages which, after trial as well as on appeal,was decided in their favor.

Petitioner PAL has come to us via the instant petition for review on certiorari,wherein it challenges the affirmatory decision of respondent Court ofAppeals3 (1) for applying Articles 2220, 2232 and 2208 of the Civil Codewhen it sustained the award of the court a quo for moral and exemplarydamages and attorneys fees despite absence of bad faith on its part; and (2)for not applying the express provisions of the contract of carriage andpertinent provisions of the Warsaw Convention limiting its liability toUS$20.00 per kilo of baggage.

1. Anent the first issue, petitioner argues that there was no bad faith on itspart for while there was admittedly a delay in fulfilling its obligation under thecontract of carriage with respect to the transport of passengers and thedelivery of their baggage, such delay was justified by the paramountconsideration of ensuring the safety of its passengers. It likewise maintainsthat its employees treated private respondents fairly and with courtesy to the


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extent of acceding to most of their demands in order to mitigate theinconvenience occasioned by the measures undertaken by the airline toensure passenger safety.4

It reiterated its position that the off-loading of private respondents baggagewas due to weight limitations, as lengthily explained by petitioner from anaeronautically technical viewpoint,5 taking into consideration such variablefactors as flight distance, weather, air resistance, runway condition and fuelrequirement. Given the variable weather conditions, it claimed that theweight limitation for each flight can only be ascertained shortly before take-off. While admittedly there would be a resulting inconvenience in theaccommodations of the passengers and the handling of their cargo, the sameis outweighed by the paramount concern for the safety of the flight.

Petitioner moreover impugns the Court of Appeals allegedly improperreliance on the inaccurate interpretation of the testimony of PALs baggageservice representative, Edgar Mondejar,* that private respondents baggagewere off-loaded to give preference to baggage and/or cargo originating fromHonolulu. PAL argues that Mondejars knowledge of what transpired inHonolulu was merely based on the telex report forwarded to PALs Manilastation stating that the off-loading was due to weight limitations.6

Petitioner enumerates the following incidents as indicative of its good faith indealing with private respondents: (1) The cancellation of the flight to SurigaoCity due to mechanical/engine trouble was to ensure the safety of passengers

and cargo; (2) PAL offered to shoulder private respondents preferredaccommodations, meals and transportation while in Cebu City with more thanthe usual amenities given in cases of flight disruption, and gave them priorityin the following days flight to Surigao City; (3) PAL employees did not actrudely towards private respondents and its managerial personnel even gavethem special attention; (4) It was reasonable for PAL to limit thetransportation expense to P150.00, considering that the fare between theairport and the hotel was only P75.00, and they would be picked up by theshuttle bus from the hotel to the airport, while the request for money for tipscould not be justified; and (5) The inadvertent loading of private respondentsbaggage on the replacement flight to Surigao City was at most simple andexcusable negligence due to the numerous flight disruptions and large

number of baggages on that day.

Petitioner strenuously, and understandably, insists that its employees did notlie to private respondents regarding the want of accommodations at thelatters hotel of preference. The only reason why Cebu Plaza Hotel was notinitially offered to them by PAL was because of the earlier advice of the hotelpersonnel that not all the stranded PAL passengers could be accommodated


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therein. It claimed that it was in accordance with the airlines policy ofhousing all affected passengers in one location for easy communication andtransportation, which accommodations in this instance could be provided byMagellan Hotel. However, upon insistence of the Mirandas on their preferencefor Cebu Plaza Hotel, Jeremias Tumulak, PALs passenger relations officer,told them that they could use the office phone and that if they could arrange

for such accommodation PAL would shoulder the expenses. This concession,so petitioner avers, negates any malicious intent on its part.

Crucial to the determination of the propriety of the award of damages in thiscase is the lower courts findings on the matter of bad faith, which deservesto be quoted at length:

These claims were reasonable and appeared to be supported by theevidence. Thus it cannot be denied that plaintiffs had to undergo somepersonal inconveniences in Manila for lack of their baggage. It is also highlyprobable that plaintiffs scheduled return to Surigao City was upset becauseof their having to wait for one day for their missing things. Consequently, itwas quite evident that the off-loading of plaintiffs baggage in Honolulu wasthe proximate cause of plaintiffs subsequent inconveniences for which theyclaimed to have suffered social humiliation, wounded feelings, frustration andmental anguish.

xxx xxx xxx

In the present case there was a breach of contract committed in bad faith bythe defendant airlines. As previously noted, plaintiffs had a confirmedbooking on PAL Flight PR 101 from San Francisco to Manila. Thereforeplaintiffs were entitled to an assured passage not only for themselves but fortheir baggage as well. They had a legal right to rely on this.

The evidence showed that plaintiffs baggage were properly loaded andstowed in the plane when it left San Francisco for Honolulu. The off-loading orbumping off by defendant airlines of plaintiffs baggage to give way to other

passengers or cargo was an arbitrary and oppressive act which clearlyamounted to a breach of contract committed in bad faith and with malice. Inthe aforecited case, the Supreme Court defined bad faith as a breach of aknown duty through some motive of interest or ill will. Self-enrichment orfraternal interest, and not personal ill will, may have been the motive, but itis malice nevertheless (infra).


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As correctly pointed out in the Memorandum for Plaintiffs dated June 18,1990 (pp. 4-5), the following excerpt from the testimony of Edgar Mondejarclearly demonstrated the act of discrimination perpetrated by defendant onthe herein plaintiffs (TSN, Edgar Mondejar, Feb. 28, 1990, pp. 26-28), thus:

Q: Before a plane departs, your office will see to it the plane loads the exactweight limitation insofar as the cargoes (sic) and passengers are concerned,is that correct?

A: Yes.

Q: And so with the PR 101 flight starting mainland USA, it complied with theweight limitation, passengers and baggages (sic) limitation, is that correct?

A: Yes.

Q: In other words the trip from the mainland USA started in Hawaii to off-load cargoes (sic), you complied with the weight limitation and so on?

A: Yes.

Q: But you are saying upon arriving in Honolulu certain containers were off-loaded?

A: Yes.

Q: That would be therefore some containers were off-loaded to give way tosome other containers starting from Honolulu towards Manila?

A: Yes.

Q: In other words Mr. Mondejar, preference was given to cargoes (sic) newlyloaded at Honolulu instead of the cargoes (sic) already from mainland USA, is


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that correct?

A: Yes.

The aforesaid testimony constituted a clear admission in defendantsevidence of facts amounting to a breach of contract in bad faith. This beingso, defendant must be held liable in damages for the consequences of itsa

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